In the cryptocurrency world, staking refers to “locking up” a digital asset by “staking” it, agreeing to hold it in a wallet on a Proof-of-Stake (PoS) blockchain network. By agreeing to stake some or all of your holdings you are helping to ensure that the blockchain the assets are staked on, operates correctly and securely. In exchange for helping to secure a blockchain network, participants who stake their coins, receive a share in the block reward in the form of newly minted coins. Staking is an integral part of a Proof-of-Stake (PoS) consensus mechanism and is designed as an alternative to Proof-of-Work that maintains the long-term security and reliability of a protocol.
What Are Staking-as-a-Service Providers?
Staking-as-a-Service Providers are node operators or professional validators, that choose to accept delegations from crypto investors, taking care of the technical aspect of the staking process. For this service, platforms charge a fee – usually a percentage of the staking rewards. The idea behind Staking-as-a-Service platforms is to enable anyone – even those without technical knowledge – to take part in the staking economy. They lower the (technological) barriers at entry level so that anyone can earn tokens by providing them as a stake in a PoS network. The use of third-party staking services is often referred to as “soft staking”.
What are smart contracts on blockchain?
Smart contracts are lines of code that are stored on a blockchain and automatically execute when predetermined terms and conditions are met. At the most basic level, they are programs that run as they have been set up to run by the people who developed them. The benefits of smart contracts are most apparent in business collaborations, where they are typically used to enforce some type of agreement so that all participants can be certain of the outcome without an intermediary’s involvement.
What smart contracts on blockchain can do is streamline this complex process that involves several intermediaries because of a lack of trust among participants in the transaction. With your identity stored on a blockchain, lenders can quickly make a decision about credit. Then, a smart contract would be created between your bank, the dealer and the lender so that once the funds have been released to the dealer, the lender will hold the car’s title and repayment will be initiated, based on the agreed terms. The transfer of ownership would be automatic as the transaction that gets recorded to a blockchain is shared among the participants and can be checked at any time.
How do smart contracts work?
Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions (releasing funds to the appropriate parties; registering a vehicle; sending notifications; issuing a ticket) when predetermined conditions have been met and verified. The blockchain is then updated when the transaction is completed. Within a smart contract, there can be as many stipulations as needed to satisfy the participants that the task will be completed satisfactorily. To establish the terms, participants to a blockchain platform must determine how transactions and their data are represented, agree on the rules that govern those transactions, explore all possible exceptions and define a framework for resolving disputes. It’s usually an iterative process that involves both developers and business stakeholders.
What is Blockchain? (short version)
A blockchain is a digital record of transactions. The name comes from its structure, in which individual records, called blocks, are linked together in a single list, called a chain. Blockchains are used for recording transactions made with cryptocurrencies, such as Bitcoin, and have many other applications. Each transaction added to a blockchain is validated by multiple computers on the Internet. These systems, which are configured to monitor specific types of blockchain transactions, form a peer-to-peer network. They work together to ensure each transaction is valid before it is added to the blockchain. This decentralized network of computers ensures a single system cannot add invalid blocks to the chain. When a new block is added to a blockchain, it is linked to the previous block using a cryptographic hash generated from the contents of the previous block. This ensures the chain is never broken and that each block is permanently recorded. It is also intentionally difficult to alter past transactions in blockchain since all the subsequent blocks must be altered first. Decentralized blockchains are immutable, which means that the data entered is irreversible.
When blockchain technology is incorporated into the data process, you remove the single point of failure, in this case the DBA, and ensure that if one of the participants makes a change it is immediately corrected by the other participants. After the data corrects itself, the unalterable record of changes will also indicate which participant tried to make the change. With the data process secured, a business can not only trust the data shared between the companies they are working with but it can even trust the data shared by competitors. For example, if Samsung and Apple were sharing technology with each other, Samsung could trust Apple to have made a payment for the technology and Apple could trust Samsung to have delivered it. An interesting thing happens when competitors can trust the data being shared, it creates opportunities for more participants within the vertical to join the blockchain network and increase the visibility into the data. Expanding on the previous example, if Samsung and Apple were sharing technology and data on a blockchain network, and a transportation company joined the network, that data the transportation company wanted to share on the network would be immediately accessible to each of the other participants and then replicated to their records. Any time one of the participants makes a change, a new version of the record is validated by all participants. In this case, Apple could track the shipment from Samsung’s factory to Apple’s manufacturing center. Additionally, if a bank was added to the network, payment to the bank and to each participant after a transaction could be triggered automatically when a condition in the data was met. And because this data is secured and validated by all the participants, no single participant can fraudulently, or accidentally, alter the data to meet the conditional trigger within the data.
What is Proof-of-Stake (PoS)?
Proof of stake (PoS) is a type of consensus mechanisms by which a cryptocurrency blockchain network achieves distributed consensus. In PoS-based cryptocurrencies the creator of the next block is chosen via various combinations of random selection and wealth or age (i.e., the stake). Proof-of-Stake requires network participants to stake the network’s native asset to achieve distributed consensus. Block rewards are attributed to stakers using a combination of random selection and the size of the stake (measured by the number of tokens) that have been provided. Unlike its predecessor, the Proof-of-Work (PoW) consensus algorithm, which has been made popular by Bitcoin, PoS does not require machines to make energy-intense calculations to solve a puzzle. PoS is therefore considered a more environmentally-friendly alternative, and many consider it as the future of consensus protocols.
Elrond is a distributed transactional computation protocol which relies on a sharded state architecture and a secure Proof of Stake consensus mechanism. While most other blockchain networks require custom hardware and high energy consumption, Elrond runs on average computers. By employing sharding, a method of parallelizing data & transactions processing, Elrond’s performance will scale up with the number of computers joining the network, reaching more than 100.000 transactions per second while growing increasingly decentralized.
The Elrond network is the first to present a viable solution where all the three aspects of sharding - state, network and transactions - have been implemented at once. Combined with its “Adaptive” component, this novel architecture allows for dynamic network configuration to maintain a high level of security while scaling with demand. In addition to scaling through sharding, Elrond also approaches the consensus problem with a mechanism called Secure Proof of Stake, which mitigates potential attack vectors when compared to Proof of Work while also enabling large throughput and fast execution. By solving some of the hardest consensus and sharding problems in the blockchain space, Elrond is able to provide a very high level of performance on a network made of inexpensive computers, resulting in a very low cost per transaction. In addition to performance and cost, Elrond also stands out through the quality of the developer experience and the resulting boost in usability on the end-user side.
What is Adaptive State Sharding?
Sharding was first used in databases and is a method for distributing data across multiple machines. This makes it a scaling technique, and can be used by blockchain networks to partition states and transaction processing, so that each node of the network would only need to process a fraction of all the transactions. Moreover, sharding allows for the parallel processing of transactions. As long as there is a sufficient number of nodes verifying each transaction, ensuring high reliability and security, then splitting a blockchain into shards will allow it to process far more transactions by means of parallelization and thus greatly improving transaction throughput and efficiency. There are three main types of sharding: network sharding, transaction sharding and state sharding. State sharding is the most challenging approach. In contrast to the other sharding mechanisms, where all nodes store the entire state, in state-sharded blockchains, each shard maintains only a portion of the state. Every transaction handling accounts that are in different shards, would need to exchange messages and update states in different shards. In order to increase resiliency to malicious attacks, the nodes in the shards have to be reshuffled from time to time. However, moving nodes between shards introduces synchronization overheads, that is, the time taken for the newly added nodes to download the latest state. It is therefore imperative that only a subset of all nodes should be redistributed during each epoch, to prevent down times during the synchronization process. Sharding in the Elrond network was designed from the ground up to address the complexity of combining network sharding, transaction sharding and state sharding.
What are the benefits of smart contracts?
The benefits of smart contracts go hand-in-hand with blockchain.
> Speed and accuracy: Smart contracts are digital and automated, so you won’t have to spend time processing paperwork or reconciling and correcting the errors that are often written into documents that have been filled manually. Computer code is also more exact than the legalese that traditional contracts are written in.
> Trust: Smart contracts automatically execute transactions following predetermined rules and the encrypted records of those transactions are shared across participants. Thus, nobody has to question whether information has been altered for personal benefit.
> Security: Blockchain transaction records are encrypted and that makes them very hard to hack. Because each individual record is connected to previous and subsequent records on a distributed ledger, the whole chain would need to be altered to change a single record.
> Savings: Smart contracts remove the need for intermediaries because participants can trust the visible data and the technology to properly execute the transaction. There is no need for an extra person to validate and verify the terms of an agreement because it is built into the code.
How does a blockchain differ from a database?
The primary difference between a blockchain and a database is centralization. While all records secured on a database are centralized, each participant on a blockchain has a secured copy of all records and all changes so each user can view the provenance of the data. The magic happens when there’s an inconsistency — since each participant maintains a copy of the records, blockchain technology will immediately identify and correct any unreliable information. When data can automatically identify and correct itself based on coded business logic (smart contracts) and consensus, participants are intrinsically able to trust it. When two businesses work together, they almost never share a single database with a single set of records, because the database is being maintained and updated by a database administrator (DBA). That DBA is being paid by one of the companies and therefore has a stake in the success of one company but not necessarily the other. If they wanted to make a change that benefits their company, the other company would never know. Alternatively, on a more nefarious note, if a competitor decides to pay off the DBA, they can make any change they want to the database without either participant ever knowing.
Staking profits depends on the percentage of return a validator provides per year a.k.a APR - Annual Percentage Rate. Suppose you want to stake 100 “A” coins to a validator that provides 10% APR. Then you will get 10% interest on your asset every year. Means after 1 year, your net asset will be 100+(100×10%)= 110. That means everyday you will get 10÷365= 0.027% interest or 10÷12= 0.833% interest per month.